# Effect of Transactions on Working Capital, Current Ratio, and Quick Ratio (Note: Consider completing Problem 13-2 after this problem to ensure that you obtain a clear understanding of the effect of various transactions on these measures of liquidity.) The following account balances are taken from the records of Liquiform Inc.:Cash ................ $ 70,000Short-term investments ........ 60,000Accounts receivable .......... 80,000Inventory ...............

Chapter 13, Problems #1

Effect of Transactions on Working Capital, Current Ratio, and Quick Ratio (Note: Consider completing Problem 13-2 after this problem to ensure that you obtain a clear understanding of the effect of various transactions on these measures of liquidity.) The following account balances are taken from the records of Liquiform Inc.:

Cash ................ $ 70,000

Short-term investments ........ 60,000

Accounts receivable .......... 80,000

Inventory ............... 100,000

Prepaid insurance ........... 10,000

Accounts payable ........... 75,000

Taxes payable ............ 25,000

Salaries and wages payable ....... 40,000

Short-term loans payable ........ 60,000

Required

1. Use the information provided to compute the amount of working capital and Liquiform€™s current and quick ratios (round to three decimal points).

2. Determine the effect that each of the following transactions will have on Liquiform€™s working capital, current ratio, and quick ratio by recalculating each and then indicating whether the measure is increased, decreased, or not affected by the transaction. (For the ratios, round to three decimal points.) Consider each transaction independently; that is, assume that it is the only transaction that takesplace.

Cash ................ $ 70,000

Short-term investments ........ 60,000

Accounts receivable .......... 80,000

Inventory ............... 100,000

Prepaid insurance ........... 10,000

Accounts payable ........... 75,000

Taxes payable ............ 25,000

Salaries and wages payable ....... 40,000

Short-term loans payable ........ 60,000

Required

1. Use the information provided to compute the amount of working capital and Liquiform€™s current and quick ratios (round to three decimal points).

2. Determine the effect that each of the following transactions will have on Liquiform€™s working capital, current ratio, and quick ratio by recalculating each and then indicating whether the measure is increased, decreased, or not affected by the transaction. (For the ratios, round to three decimal points.) Consider each transaction independently; that is, assume that it is the only transaction that takesplace.

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## Using Financial Accounting Information The Alternative to Debits and Credits

7th Edition

Authors: Gary A. Porter, Curtis L. Norton

ISBN: 978-1133161646